Paypal Flashcards
1
Q
What sector/space does PayPal operate in?
A
digital financial services (FinTech)
2
Q
what is a trend with digital payments
A
they’ve been growing
3
Q
Part of general environment: Technology
A
- Paypal relies on internet connection and adoption of it
- devices needed
- data plays a huge role
- ->investment, marketing (can tailor recommendations, services)
- ->can detect fraud, other criminal activity
- ->can also predict credit worthiness of borrowers
- security is important
4
Q
Part of general environment: Global
A
- covid-19
- ->caused FinTech to expand (favourable conditions for this sector)
- ->e-commerce grew, online payments also grew
- increased globalization,
- ->more international transactions (they are growing)
5
Q
Part of general environment: Political/Legal
A
- regulations are important with money stuff
- -> heavily regulated sector
6
Q
Part of general environment: Sociocultural
A
- women and POC tend to have less access to financial services –> have to pay 40% more
- ->redlining, stopped people from buying houses (couldn’t get loans), etc.
- SMEs also have less access to financial services
- some population segments are underserved financially
- entrepreneurs of colour charged higher interest rates (32% higher)
- only 1% of venture capital funding went to black-led businesses
- consumer adoption of digital pay
7
Q
Part of general environment: Economic
A
- economic recession in 2008/9
- ->banks had to close less profitable branches, especially in lower income neighbourhoods
- ->had to raise credit requirements for individuals and small businesses
- growth in e-commerce
8
Q
5 Forces: Rivalry
A
HIGH
- person-to-person,
- ->not very profitable since transactions can’t be monetized
- ->Venmo (but was acquired by PayPal)
- Remittances
- ->Xoom, Western Union, and Money Gram
- Loans, deposits
- ->Shopify, traditional banks, square
Point of sale agreements
- *this is where there is there majority of the competition
- number of competitors is high
- undifferentiated services –> services have become a commodity
- also compete on marketing –> costs here
- –>distribution is key
- Competitors
- ->Apple, Samsung, Google, Amazon, AT&T, T-Mobile, Verion, AmEx, Mastercard, Chase, Bank of America, Walmart, Target
- ->Fintech start-ups: Shopify, Stripe, Square
9
Q
5 Forces: Threat of new entrants
A
- growth in industry attracts new customers
- well-funded startups, major internet players, cell phone providers all entering
- ->can collect data
- entry barriers:
- ->need brand name a bit–> for customer trust reasons
- ->transparency
- ->regulations –>not as important for startups
Remains high despite entry barriers
10
Q
5 Forces: Threat of substitutes
A
- traditional banks, financial services
- Paypal found a niche
- brick-and-mortar traditional banks aren’t going anywhere
- -> threat is still significant for the average customer
- –>middle-class with constant strategy
- banks need a lot to be profitable (e. $25 000 minimum loan)
- ->only makes sense for them to target large companies
Medium threat
11
Q
5 Forces: Bargaining Power of buyers
A
*varies based on consumer –> depends on profile of consumer
- businesses
- ->depends on size of the business
- ->some have higher credit, borrowing history, etc.
- these will have higher bargaining power
Overall still high
12
Q
5 Forces: Bargaining power of suppliers
A
- small banks could be suppliers
- pretty low and insignificant –> threat is benign
- *this really helps profitability
13
Q
summary of 5 forces
A
- main pressure comes from competitors and buyers
- -> in specific parts of industry/company may be stronger
- 19.6% profit margins for PayPal
- -> they’re making money, so five forces aren’t overwhelming
14
Q
Key success factors
A
- strong marketing and distribution channels
- –>want market share
- brand trust –> security is needed (fraud detection)
- technological innovation, investments
- data
- compliance (to regulatory authorities/with regulations)
15
Q
Opportunities for PayPal (these have tendency to go into alternatives/recommendations)
A
- growth of e-commerce
- financially underserved people
- ->can generate $100 trillion in financial assets over next 50 years
- ->in US $144 billion (6.5% are unbanked, 18.7% are underbanked)
- emerging markets
- ->cross-border sales
16
Q
Threats
can typically look at competition to find threats
A
- potential new regulations
- chinese giants
- ->follow citizens as they travel abroad, aggressively buying fintech startups
- security, fraud
17
Q
What are the 6 characteristics of stakeholder capitalism? (ie what does PayPal need to consider when thinking about each different stakeholder group)
A
- Needs of each stakeholder group
- importance of each stakeholder to success
- consequences if a group is overlooked
- What PayPal does to address the needs of each group
- Impact on shareholder value
- Covid-19
18
Q
Paypal Strengths
A
- brand recognition and trust
- ->PayPal customers are 57% more likely to complete their purchases when there is a PayPal check-out button since they trust it
- -> Paypal is a leader in customer trust
- costs are 80% lower than brick-and-mortar banks
- biggest two-sided platform outside of China
- loyal employees (strong HR abilities)
- ->retention, less turnover
- ->customer service
- ->attract top talent
- strong international presence (operate in more than 200 markets around the world)
- diversified into different financial services
- strong financial resources
- ->access to funding (publicly traded)
- ->profitable
- data
- tap into unbanked market
- network effect
- ->the two-sided platform
- -> the more buyers there are, the more merchants want to participate and vie versa (mutually reinforcing)
- through cooperative strategy, was able to increase it’s reach
- ->38 partnerships agreement
- ->partnered with credit card companies (their competition), financial institutions, retailers, and telecom and tech companies
- kills threat of fraud through investment in fraud detection
19
Q
Weaknesses
A
- compared to banks, maybe lack some financial services
- compared to other fintech/competition, not very diversified
- ->more vulnerable since only dependent on Fintech space
- ->ex. Apple has more than just Apple Pay
- can’t monetize Venmo –> unused opportunity
- Paypal is behind Apple Pay in number of users
- weak in China
20
Q
competitive advantage for PayPal
A
- ability to bring buyers and merchants –> mutually reinforcing two-sided platform
- ->scale leads to scale
- relationships with regulators
- Schulman also saw blocking hate groups as a source of competitive advantage even though it takes work
- ->builds employee pride, increases trust with regulators and avoids the hate group controversies that had engulfed companies with Facebook and Twitter
-Paypal also argues that neglecting other stakeholders, hurts shareholders compared to just focusing on them
21
Q
Who are PayPal’s stakeholders (5 primary and 2 secondary)
A
Primary
- consumers
- employees
- regulators
- merchants
- shareholders
Secondary
- communities
- competitors
22
Q
Employees
A
- want to retain them
- attracting top talent is crucial to success
- more retention
Consequences if overlooked
- a lot more turnover, unionization, walk-outs
- ->raises costs and bureaucracy
What they do
- emergency relief fund
- ->fixed one of the best call centre employees’ car
- goal for every employee to have 20% disposable income
- ->lowered health care costs, reviewed and raised wages where needed, offered stock ownership to every full-time PayPal employee, enhanced benefits, provided free tools and resources to teach long-term financial planning
- conscious-inclusion training program
- broke off new operations centre in North Carolina due to a transphobic bill that was passed
Benefit for shareholder value
- less turnover = less costs
- more employee motivation
- these give PayPal competitive strength since they have loyal and talented workforce
Covid-19
- didn’t lay off employees, payments for those who had to stay home
- ->but covid-19 generally did have favourable impact for PayPal
23
Q
Regulators/Law enforcement
A
- Paypal proactively approaches them
- ->take time to share tech developments with regulators
- an important stakeholder
- ->critical to success, especially in terms of geographic diversification
- fraud detection with law enforcement
- ->to detect fraud, illegal firearm sales, human trafficking, child predators, terrorists, and other crimes
covid
–>approached regulators to see if they could help
-dedicated significant resources to actively block those raising funds to promote hatred or racial intolerance
24
Q
Consumers
A
- keeping them loyal is critical because of low switching costs
- want to acquire 1 billion users in next 5 years
- -> low and middle-income consumers
- ->bigger chunk of population + have more needs for PayPal (underserved from traditional banks)
- target also corresponds to cost leadership (eliminate some fees)
- data critical –> achieved through volume (makes it important)
To satisfy consumers:
- acquired Xoom (cheaper remittances)
- acquired Honey (discounts on online stores)
- interview consumers in homes
Covid-19
- helped consumers get gov checks faster
- used Venmo to facilitate others helping each other
- discounted fee for charitable contributions
25
Q
Merchants
A
- part of the two-sided network, needs for customer base
- PayPal Working Capital (PPWC)
- ->flat fee fixed repayment percentage of sales (flexible payment terms)
- ->if sales decline, debt service automatically decreases
- ->merchants prefer simplicity even if rates may be higher (25% which is equivalent to a credit card rate)
- cost
- ->risk since they don’t take collateral
- works with POC businesses, women-run businesses
- one of top 5 lenders to small businesses in the US(PPWC is really helpful for this)
- ->lending $1 billion each quarter
- a money-making strategy despite the risk
- -> keeps shareholders
Covid
- waived fees for transferring money out of a PayPal business account
- Paypal customers could defer repayment on business loans and cash advances with no cost
- helped distribution of US gov’s Paycheck Protection program (PPP)
- committed $530 M to support black businesses
- ->10 million in grants of up to $10 000 for black-owned businesses impacted by covid, $5 million in grants to non-profits providing technical assistance to Black-owned businesses, and a $500 million economic opportunity fund to invest in POC businesses
26
Q
problem of the case (and potential other strategies)
A
Will this strategy permit PayPal to grow to reach their target of 1B consumers? (closing gap from 350M)
–>in a highly competitive environment
- hard to expand into China because of gov regulations and tough competitors
- could diversify more
- -> ex. mortgages
- more partnerships and acquisitions (buy competitors)
- go after large customers
